members ask of their families and serving our country. a lot of work remains, especially to rebuild a strong middle class and offer working folks new pathways to rise into the middle class. our economy is in the a better position than tomorrow that most other countries hit by the financial crisis. i a understand tim is ready for a break. obviously we are sad to see him go. but i cannot think of a better person to continue his work at treasury that -- than the jack lew. this is bittersweet because not only is 10 leaving the jacket and my chief of staff for the last year. was my budget director before that. i trust his judgment, value his friendship, and know very few people would give greater integrity than the man to my

left. i don't want to see him go because it is working out well for me to have him in the white house, but my loss will be the nation's game. jack has the distinction of having worked and succeeded in some of the toughest jobs in washington and the private sector. as a congressional staffer in the 1980's, he helped negotiate the deal between president reagan and tip o'neill. under president clinton, he presided over three budget surpluses in a row. for all of this talk about deficit reduction, making sure our books are balanced, this is the guy who did it three times. he helped oversee what our nation's finest universities and largest investment banks. in my administration, he has managed operations for the state department and the budget for the entire executive branch.

i have sought his advice on virtually every decision i have made from economic policy to foreign policy. one reason he has been so effective in this town is because he is a low-key guy who prefers to surround himself with policy experts rather than television cameras. over the years, he has built a reputation as a master of policy can work with members of both parties and ford principled compromises. maybe most importantly, as the son of a polish immigrant, a man of deep and about face, he knows that every member on a page, every dollar we budget, every decision we make has to be an expression of who we wish to be as a nation, our values. values that say everybody gets a fair shot at opportunity. and says we expect all of us to fulfill our individual obligations as citizens in return. jack has my complete trust. i know i'm not alone in that. in the words of one former

senator, having him on your team is the equivalent of having -- a coach having the luxury of putting someone in almost any position and knowing they will do well. i hope the senate will confirm him as quickly as possible. i want to personally thank both of these men and their families for their extraordinary service to our country. with that, i would like to invite them to say a few words. >> mr. president, it has been a privilege to serve you. i am honored and grateful that you asked me to do this, really, i m. i am very proud of my colleagues at treasury and your economic team was able to help you accomplish these first four years. when you stepped into this building as president, you were confronted with a world in crisis, the worst crisis in generations. he made the necessary, hard, politically perilous choices

that saved the american people, save the american industry, save the economy from a failing financial system. your successful response to the crisis did not solve all the nations of challenges. it could not have done so. the actions you took along with those of a forceful and create a federal reserve have made the country stronger and have put us in a much better position to face the many challenges still ahead of us, and they are many. i have the greatest respect for jack lew. he is a man of exceptional judgment, called under pressure, with an extraordinary record of accomplishment -- accomplishment and experience at the center of american economic policy. he is committed to defending the elderly and the poor. he understands what it takes to create conditions for stronger economic growth and a broader economic opportunity.

he understands that to govern responsibly is to govern with the recognition that we have limited fiscal resources. like jack, i've spent my professional life in this world of public policy and public service and as all of you know, our families carry large share of the burdens we assume in public life. i feel incredibly fortunate that my wife, carol, and my family have been willing to allow me to do this. i thank them for their support and patience and i understand their occasional and patience. [laughter] -- occasional in patients. i want to show my appreciation for the women of the treasury department. the civil service of the treasury come with him my first art work and -- working in 1988, they are exceptionally talented public servants and i

am proud of with the help you accomplish. i am confident my successor will find them the extraordinary asset they are to the nation. i also hope americans will look at the challenges we face today and decide as many of you in this room have that in spite of the divisive state of our political system today, that serving your country is compelling and rewarding work. that was my experience, and i am grateful and will always be grateful to all of you for having given me the opportunity to serve you as the 75th secretary of the treasury. [applause]

>> mr. president, it has been my honor to serve as your chief of staff, and before that at the office of management and budget in the state department. it has been a privilege to come to work every day as part of a team dedicated to building a sound economy and safer world. tim, you have been a friend and colleague for many years, actually decades. the american people are better off for your outstanding service. i thought i knew you pretty well, but it was only yesterday i discovered we both share a common challenge with penmanship. [laughter] i join the president and everyone here in wishing you, carol and everyone in your family well. as a kid growing up in queens, had dreams of making a difference in the world. these dreams were nurtured in a home where the gift of freedom and opportunity were cherished and never taken for granted. the responsibility to engage in

public concern are part of everyday life. i will always be grateful to my parents for grounding the in the values that remain central to my life. i grew up in the office as speaker o'neill, whose compass was always clear and demanded unvarnished advice on how to reach the destination. he cared little about your age and rank and only whether you did the hard work to inform the decisions of the day. he took a big chance giving responsibility to a very and men, and for that i will always be thankful. serving in omb under president clinton and in this administration, work to execute a fiscal policy while advancing policies to promote economic growth. i am delighted to see so many of my friends from their today. at the state department, i worked closely with our great secretary of state and my friend, hillary clinton, to advance our national security agenda. as chief of staff, have had the

pleasure of working with a tremendously talented white house team which manages policy, politics, communications and complex operations every day with grace, skill, and loyalty. if confirmed, i look forward to joining the treasury department, is people are legendary for their skill and knowledge. it is a team i have collaborated with closely and come to respect greatly. thank you for your and less tolerance for the demands of this schedule the test all families patient. thank you, mr. president, for your trust, confidence and friendship. serving in your administration has allowed me to live out the values my parents instilled in me, and i look forward to continuing the challenges ahead. [applause]

>> these are two outstanding public servants. i think the only point i want to leave you with is the fact that i had never noticed jack's signature. when this was highlighted yesterday in the press, i considered rescinding my offer to appoint him. jack assures me that he will work to make at least one letter a legible in order not to debase our currency. [laughter] should he be confirmed as secretary of treasury. thank you very much, everybody. [applause]

>> next, testimony from jack lew when he was the budget director on president obama's budget request. this portion is about an hour- and-a-half. >> i am reading in the "washington post" today, an editorial board thought of as being partial to the administration point of view. "the president pointed. having been given a chance, the cover and pushed by the fiscal commission he created to take bold steps to curb spending, president obama in his fiscal 2012 proposal chose to duck and masked some of the decking with the budgetary gimmicks he once derided. we just heard from the cbo director and chairman of the federal reserve, one of the best things we could do for the economy today is put in place a

plan that gets the deficit and debt under control. why did you duck? if george bush brought this budget to the house, i would say the exact same thing. you know the drivers of our debt. you understand the issues. i think the fact the president gave us this commission to start with acknowledge that we agree with the size and scope and nature of the problem. why did you duck? why are you not taking this opportunity to leave? >> the president's budget, if you look at the bottom line, it addresses the fiscal challenges we face in the short and medium term. he has called it a down payment, acknowledging a need to work together in the long and medium term. if you look at the mandate of the commission, it was to bring the deficit down. our budget does that. certainly there are things we will disagree about. and we will have a disagreement about priorities, but the

president's budget accomplishes that goal and if you look at the budget, it does that. the spending reductions are real. the mandatory savings are real. there are certainly other things we will need to work on to address the long-term challenges, but if our goal is to get to a sustainable deficit by 2013, the president's budget puts down a comprehensive past. >> using your own table on page 176 of your budget, you don't get the primary balance in your own numbers until 2017 and immediately thereafter, he have more problems. >> let's look at this -- if you look at, it comes down to 3.2% in 2015. we have stayed in that area around 3% of gdp for the rest of the decade.

if he had a series that went beyond, it would go for years beyond that. it is a mistake to think of 3% of gdp as a bull's-eye. if you compare 10.9% to 3.2 or 3.1, it is a world of difference. i think we achieved balance in this budget. >> let's get behind what is the claims for balance. i can go through the tables, but am i correct that the budget proposal revenue that is $819 billion greater than your line -- you have $807 billion in your tax increase built into it because it seems the expiration of the tax cuts for higher income earners and assumes the state tax subvert -- reverts back to 2009 levels. >> our baseline assumes, consistent with where there was bipartisan agreement in december, we would permanently

extend the middle-class tax cuts and we would have estate tax relief. we did not have a long-term agreement on the upper-income rates or the richer -- we tried to construct a baseline so the difference would be clear. >> adding the additions in the base line of revenue increase, that is about $1.6 it is debt service on top of that. 709 for the upper income, 147 in debt service. >> let me get to this. i have a lot of questions and i am willing to send you more. your economic assumptions, how you achieve the claims you're

making. i want to ask you how you make these economic assumptions. you are expecting robust growth with real gdp growth above 4%, much higher than the private sector blue-chip. i find it interesting that this marks the year where you are calling for a big rise in taxes across all segments of our economy. you are basically raising taxes on our backs -- on successful small-business is, and specifically there is a new 3.8 tax increase on investment. it will rise from the current level to 44.8%. it could triple from its level of -- the tax will rise from 50% to 23.8%.

but you are calling for robust economic growth in that very year. do you think that the tax increases you are planning on for mostly successful small businesses and job creators, do you think it will not impact the economy. if it does not, you'll never reach primary ballots, as you are claiming. >> there are some provisions that do take effect and go out of affect because of that. if you look at our economic assumptions, the economic assumptions in the short term are more pessimistic than some of the outside observers. the question is, will we recover from this reception --

recession the way we have from past recessions? there have been slightly longer periods of recovery, but in the and be back to where the group economy would have been. we assume that that is the case. we are in the range of recoveries from past financially led recessions. we think they are prudent. i apologize, i am a lawyer, not an economist, i could probably get into detail that is beyond my own training, but economists can disagree about whether or not we will get back to the potential gdp from before, but we think it is the right thing to do to get our economy back. that is why we put forward a budget that invests in the things it takes to grow the economy. education infrastructure is key to it. >> you are saying that in 2013

you will have on economic growth 1 per -- 1.3% higher than what cbo believes, higher than what the blue chip believes, your claiming this explosion of growth where you raise taxes across the board on small businesses, investors, investment. history does not square with your comments. if you are right and we are wrong, you will never reach primary balance. the $1.70 trillion claimed above and beyond what is claimed does not materialize and we are in a world of trouble. what is so frustrating is that you know the drivers of that are the entitlement programs, yet you are doing nothing to address that. we are in different parties, which is fine, but people expect the president to lead and

take on the country's biggest challenges before the become actual crises. we all know that this debt is becoming a crisis and you are not even touching these programs. you are assuming that the economy is going to take off in a year. and if your math does not add up, we are all in a world of hurt that will cost us jobs. >> if you look at the tax provisions, the vast majority of revenues you are talking about are associated with the tax rate at the top end. $250,000 per year or more. i would note that during the clinton administration, we have the longest period of uninterrupted growth in american history. the sun not tax rates that have historically been challenging to growth. inside the budget, where there are new proposals, there are proposals designed to promote

the kind of investment that we need in this country. it does not amount to a large amount in 2013. >> i am not sure where you are from, but where i come from most of our jobs come from successful small businesses. in any city there will be an industrial park, llc, with maybe 200, 300 employees. they file taxes as individuals. most of the top tax rates are businesses. when we go above 50% in most states, 44.8% in this country, most of our competitors are real -- are taxing at rates lower than we are, how are we expecting to create jobs when we tax the engine of job growth, small businesses, at 55% in this state?

>> if we look at who the taxpayers are and where the revenue goes in, but i am from new york and a lot of it goes to revenue and to the law. i think that we have a lot of tax proposals that would make taxes easier. the right way to target it is to do things that target investment. not the kind of income that drives people into that bracket in most cases. >> all right. >> thank you, mr. chairman. director, as i indicated in my opening statement, i think it is an important achievement in the budget to reach primary balance by the year 2017 to begin to stabilize the problem. i also indicated that i think we need to work together,

especially to take action now on what will be projected deficits in the next 20 years and i think that conversation should begin now. i want to point out in the spirit that this is not easy to do when you are digging yourself out of the deep hole, there are other alternatives out there. the chairman of the committee has put forward a road map in good faith and sincere effort to reduce the deficit. it is in that spirit that i want to point out that the congressional budget office last january scored that budget proposal, that deficit proposal, and indicated that by and the year 2020 the deficit would be 3.7% of gdp. the budget would also not be in primary balance under the plan.

if you go out another 20 years to 24 the, the deficit percentage of gdp is 4.5% and the budget is just then getting into primary balance. as some have criticized the president's effort, just recognize the other sincere efforts that were made. there are one to be conversations the different assumptions. i want to focus on the longer- term outlook. i want to discuss what is happening today on the floor as

it impacts and draws contrast with the approach that the obama administration has taken with respect to the deficit. you indicated talking about specific cuts. as you know from listening to many of my colleagues, these will have a real impact and a painful impact in the lives of many people, but you have decided that in order to get those deficits under control, we will have to make a tough decisions, and we agree. at the same time, today on the floor there were proposals to cut immediately and deeply and i just want to be to you a statement from the president's bipartisan deficit commission, we're hearing lots of positive things from our colleagues about their recommendations and approaches. here's what they said -- in order to avoid shocking the

fragile economy, the commission is waiting until 2012 to begin an acting problematic spending cuts. another bipartisan commission rendered the same advice. economists have indicated that deep and immediate cuts in contrast to responsible and planned cuts over time, those deep and immediate cuts could harm the fragile economy and hurt job growth. could you please comment on the proposals today, with the very deep and immediate cuts and impact they would have on the economy and job growth? >> i think we have a tough balance that we have to strike. we agree that it would be a mistake to do drastic debt reduction in this year that we are in, beginning next year.

we have bipartisan agreement in december on the tax bill, largely because of the concern that we needed to keep the economy moving. at the same time, we need to focus on reducing spending and making decisions that will turn the corner and deficit. our budget has a frame that is the right frame for a tough trade. we literally had to work to go through the remainder of the legislation for fiscal year 2011, as we work together next year, to come up with the right balance. you do not need to make the kind of cut few are described to get on the right path. we are watching carefully as we continue to work with the house

and senate to do the responsible thing and fund the government. i think it is a question of not mixing too many things together. the long-term challenge is what we have to keep our eye on, over the window of the next 10 years. are we on a path to getting down to a deficit where we stop adding to the debt? >> some of our republican colleagues have indicated that if they do not get their way in terms of these deep and immediate cuts that could harm the economy, if they do not get their way on those cuts, they would shut down the government. we have seen this movie before. i know you have. could you make clear what the impact would be on things like the social security administration and other essential functions of

government? >> i take the congressional leadership at their word that we want to avoid a situation like that. it is not the right way to run the government. i think we have a broad agreement that we have to keep essential services going. when the government shut down in the mid-1990s, it was unpleasant. when people had to apply for passports because their relative died overseas and could not get a passport, people started to take things for granted. when the government shut down, they stopped. i hope we do not get to the point where we have to go through that again. if we all work together to look for the things that we agree on, we can accomplish a great deal. >> i will say for the record that it is not our desire to see the government shut down, but

equally we do not want to rubber-stamp these. with that, mr. simpson >> it is no one's desire to shut down the government. what we want to do is reduce spending. that is what we're trying to do with the budget the brought to the floor. remember, this is on top of enormous increases that have occurred over the last few years. i know that it is hard to put together a budget, even if it is one that most people do not take seriously. most people do not think that this will ever be enacted. all the right words are used. this is a tough love budget. if this was the tough love vice foot -- my father had shown me when i was young, i would still

be a bit juvenile delinquent. some people think i still am. i understand that. i have heard we have to make tough choices that are necessary. let me ask you, this budget theoretically goes to balance in what, 16 years? >> first we have to stabilize the debt. >> is there ever a balance projected out there? >> to get the balance it will require a set of decisions beyond what anyone is discussing right now. >> why is no one discussing that? >> i presented a balanced budget with a surplus before this committee last time. we had a combination of things that drove the deficit up. we also had decisions to not pay for what we're doing. we will have to deal with the results of that.

i left things in good shape a few years ago and i want to leave it in better shape. >> the american people are saying the you need to get our fiscal house in order. we have $400 billion in cuts and savings in this budget, like it is some big deal. the budget proposal this year is $3.70 trillion, $40 billion in savings? less than 1%? this is not tough love. this is continuing the path we are currently on. with no future balanced budget

ever. the american people are rejecting it, frankly. >> let me say a couple of things. first, we put will be believed to be a serious proposal forward. we do not think we have a monopoly on knowledge or wisdom and we look forward to seeing the ideas that have been put forward. i am sure there will be things that we can agree on and things that we cannot agree on. i know it is easy to go to the starting point, but the president has a starting point. 3% of gdp by the middle of the decade, while i totally agree that we need to be on a path that goes beyond that, it will be balanced. until we start adding to the national debt, we cannot ask about the balance.

i have not seen the actions yet that reduce the deficit and i look forward to that. i know that we will work together when we see your proposals. >> we understand that we will not get to balance by cutting spending. it is a portion of how you get there. we have to address entitlement reform. the leadership has to come from the white house, frankly. >> congressman, we agree that we need to reduce spending. this is possibly the toughest budget a democratic president has ever put forward. cutting things that are very important priorities, things we have looked that for decades because we believed in growing

and that we believe in doing what it -- every american family does, making tough choices. i do not think it is fair to say that we have not dealt with entitlements. $62 billion in savings to pay for medicare over the next few years is something, it is real, and first step down payment. if we're going to work together, we have to acknowledge that social security is not driving the deficit between now and 2021. i worked on social security reform -- 1983 i was working on the reform bill. i deeply believe that we have an obligation to future and current retirees to have a system that is sound and reliable for decades and decades to come, but it is not contributing to the short-term deficit, we should do it because it is the right thing to do. >> appreciate it.

>> good to have you here, thank you for your good work on this budget that you are presenting. i appreciate what was more in your written remarks, but you did reference how we got here. i appreciate that you laid out clearly that the national debt and economic crisis was something that the president inherited. the work done in the last two years to bring us out of what was obviously a deep and broad, devastating recession, being clear that the president inherited a $10 trillion debt. this did not just happen in the last few years. it has reduced our revenues. does, iident's budget

believe, make it clear that we cannot accept the status quo. we have gotten to a better place and we are seeing growth in the economy with growth in jobs, which is good. we cannot just sit on our hands. and i think you have rejected this, but we are not rejecting the notion that we can get to a place for you can balance the budget and the economy simply from spending cuts. i appreciate that acknowledgement, because that is every proposal right now. spending cuts and tax cuts alone will not get us there. i will also agree with the comments made by the republican side that budgets are about priorities and values. i think that this is something the president has made clear, we can not only focus on deficit reduction. we need to reduce the deficit.

but, if we are going to grow the economy and get people back to work, we must invest in the future. i wanted to acknowledgement fact that the budget does reduce the deficit by $1.10 trillion. that is real money for most of us. and it is not easy to get there. bringing fiscal stability to the nation in 2017, her primary balance, none of this is easy. the budget does make strategic investments in the future. for many of us in our districts across the country, the focus on energy and evasion of education and infrastructure is important. every business i talked to said to me that we need, we look at, or locate incentives for innovation. do we have what we need to move

our products and work force? is there an educated work force? they want to know -- and it starts with -- where is the infrastructure and advantage for innovation? i think we need to talk about that, because otherwise we're just looking at slash and burn, cut spending right now. the budget deficit commission said not a good idea in a fragile economy. i would like you to elaborate on the tax credits that are available to businesses to incentivize research and development that is key to our growth. it is the private sector in this country that creates the new discoveries, technologies, and products. they often look to us for that helping hand. >> thank you. i think that if you were to ask most businesses in the high- technology area what the single

thing is that we could do that could give them stability moving forward would be permanence of the r&d tax credit. uncertainty from year to year is a difficult way to do business. in washington there is this conventional wisdom that we know it will be extended because of past to be, if you are a business person trying to get financing and investors, having that ambiguity out there can be life for death. putting a permanent extension in the budget is very important. i think it is also important to remember that there is a role for government funded programs and tax support in research and defense. basic research has been enhanced by what we do at the department of energy. what has made us the leaders in innovation is that the

technology that is discovered in places where frankly those rules should be shared by all of us, it is then handed off to a private sector with the capacity to implement it more effectively than any other in the world. >> i want to make sure that every member gets a chance. >> appreciate your comments. >> thank you, mr. chairman. welcome, director. you propose to increase federal civilian employment by 22,400 people in the coming fiscal year. seriously? we want to increase the number of federal employees now? >> there are a lot of agencies going down where the increase is very much concentrated in areas where there are new missions where there are shared concerns. if we put in place new screening procedures and machinery to make

sure that no one gets on an airplane with explosives, we will need to have the inspectors there to run the machines to know what is in them. the increases are very heavily in areas where there are new missions being undertaken. >> so, you do propose the increase? >> in general there are a lot of agencies to go down. >> that is the net increase of the defense. another question, your predecessor before this committee on several occasions said that the current fiscal trajectory of the country was unsustainable. do you share that view? >> this budget stand for the principle that our fiscal house must be done in order. we have to stop the practice of treating deficits like they do

not matter. we put a plan forward that would get us to balance by the middle of the decade. that is the challenge that he was describing a the time. >> absent the budget, you agree that the trajectory is unsustainable? >> if you look at what is driving the deficit down, part of it is getting the economy moving again. >> i understand the you are a lawyer, but that word is used by a lot of people. >> i was going to answer your question, as is needed to break it into the pieces in order to answer it. we need to keep the economy growing, because the kind of financial crisis and recession we are in creates enormous problems with our fiscal policy. we cannot stay at deficits that are 5% of gdp, roughly where we would be if we did not make policy.

i think that is what we have to be to -- we have to do to have sustainable fiscal policy. >> is this sustainable? >> that is a different issue. the sustainable is a step along the way. i preferred sitting in this seat when i could project surpluses. we are a long way from being able to do that on any side of the aisle. they're going to need to work together to add to the problem and solve the rest of it. >> earlier i think you used the word sustainable. do you believe that if we did this budget for the next 10 years as it is on this paper, that we would move along fine? >> i think that this budget produces a sustainable deficit for a period of time.

>> afterwards, the deficit goes up. >> it starts to creep up and then there is more work ahead of us. i agree with the notion that we cannot just look at the next five to 10 years. but we have to start there. >> but we do have to build the entitlement programs? >> president said that we have to look to the short term and long term. >> why not propose something now? >> this budget proposes a great deal to give this to primary balance. it extends to the offer from the president in the state of the union to work together. we have tried to create an environment where we would be able to work on things that have historically been challenging, but i think we need to do both. >> i think i am out of time. >> we will get the clock fixed.

>> thank you for your service, mr. chairman. i want to draw attention to the last time you came before this committee. it was an unusual time were you did not just talk about a balanced budget, but as you referenced, you working with president clinton and this conference -- and this congress produced a balanced budget, something that no other president before or since has done in decades. our republican colleagues, when they took over instead of building on that success, they squandered that success. they never met a tax break that they did not like and they believed in the alchemy that those tax breaks would not for pay for themselves. that in addition to the tax breaks that they advanced, they

advanced one increase in spending after another, increasing spending at an incredible rate without wanting to pay for it. after eight years of running the debt up and the economy down, they are complaining of a -- the your not solving the problems they created fast enough. with reference specifically to the question you were just asked about the increase in government employees, is a large part of that not related to the honesty that this administration brings to federal employment, that you can contract out and create the appearance the your reducing the size of government, but that many of these experiments of the last eight years just cost the taxpayers more and produce less? >> that as part of it. the other examples explain the other part of it. we want a large work force and

this is a percentage of the total. >> from the type of entitlement spending i am encouraged to see , that the administration again seems to be focusing on for the first time, some in prior administrations have not done, the area of tax expenditures. entitlements, entirely out of the budget process, you have for the first time since 1993, of any president, revised that section of your budget. it would appear that tax expenditures now rival direct discretionary expenditures and it will receive some type of thorough evaluation by the administration and i would first ask you to comment generally about what you see going forward and if we will eventually have a tax expenditure budget to allow a

more thorough comparison. >> congressman, the issue of tax expenditures is an important one. if you look at the work that the fiscal commission did, one of their real contribution was on spending for revenue and on the direct spending side. the proposal that i described as the way to pay for the alternative minimum tax extension is a prime example of how we begin to get that spending on the tax side. a host of provisions where there is more value as you get into a higher tax bracket, limited so that a family of 260,000 and above its the same value as those who are 260,000 and below. we think that that is a measured way to start getting of this

issue of spending in the tax code and we think it is something that should be the basis for the beginning of a serious conversation. >> do you envision a thorough and careful evaluation of these expenditures in your budget appendix? >> the president has proposed that we began to work together on corporate tax reform. that we have a general bipartisan consensus. >> on that point specifically i am very that he and the secretary have indicated that that must be revenue neutral. that is a non-negotiable position within the administration. we will not see of borrowing from the chinese to give tax cuts to corporations. >> the principles put forward or that they should lower the rates to be more competitive. principally it is a way to drive

international competitiveness. >> thank you. my friends on the other side of the aisle were in 2007 looking at spending around here. that is certainly a big part of it. i understand that the traffic is bad, i appreciate our guests for being here. a couple of things you pointed out, the driver of people to investment, i was a small businessman. how do you drive people to investment if you have significant increases down the road in capital gains?

>> the responsibility that we have first and foremost is the healthy economy where there is demand and business activity out there. the most important thing we can do is to be responsible in how we conduct our fiscal policy. within that we have made the kinds of choices where we think the government can be helpful in terms of driving the economy of the future. i hear this over and over again, that where they have problems is hiring people with the right skills. by producing the work force that businesses need, we are helping to promote business in this country. >> i find it difficult to believe, the folks i did business with, fighting capital

gains rates going up making it easier to do business. but i have another question now to ask. i wanted to understand this new account that you have to cover. as you know, in past years that was handled in the budget. >> happy to get back for the record. overseas these are considered contingency operations funding. with things like to withdraw all

of the troops in iraq and the buildup of the civilian mission that is quite labor and security intensive, it creates the same challenges that the military does. to the extent that we have activity that would not carry on once we normalize the diplomatic base, they should be in the overseas. >> the budget request, $117 billion for the account of the conduct in the war in afghanistan, obviously that is dependent on the u.s. troop level in iraq and afghanistan. we are bringing el in the announced policy beer -- we are bringing it down in july, but the size has yet to be

determined. on your assumption, what troop level are you assuming? >> the funding levels reflect that policy. in afghanistan the policy is that we would began to withdraw troops. that would have to be walked through by the national security team. >> last question? -- last question, would you expect war supplementals? >> we know that they would be needed for the coming fiscal year. we obviously do not know what the appropriations will be for 12. i cannot give you a guarantee, without knowing what would be appropriated. we have estimated to the best of

our ability what the cost will be. >> thank you, mr. chair. thank you for being here today. we have three challenges facing us the need to be addressed simultaneously. reducing the deficit at the same time that we need to grow the economy and create jobs to keep america competitive. as far as i am concerned, the best way to reduce the deficit is to put america back to work. the big difference, the path of that our key party, republican colleagues are taking, mean- spirited or dumb cuts.

congress has provided tax breaks, tax cuts, tax loopholes, and tax perks estimated to reduce revenues by more than $1 trillion. [no audio]

>> the policy in this budget says the the department of defense will tamp down increases so that there is no real growth in the five-year window. the savings compared to their five-year plan for the last year's budget. we think it that is an important step that requires tough choices, meaning the you cannot afford the second engine that you do not need for the joint strike fighter. there are tough decisions that have to be made. leadership in the military was difficult. there are things that are made now that will now be made in the future. that is what it takes to get our

defense budget under control. in the question of closing loopholes, the president's budget has a number of specifics. we also have provisions that would take away the tax benefits to come to companies that export jobs. we think it is important to have our policy and tax code designed do reflect what we need to do in our economy. for the future, we need to develop new and renewable energy in the technology industry. i am kind of getting your third by answering the second within five minutes. we're going to build the new economy within renewables. that is where we need to put our investment. if you look at the withdrawal of a special provision of oil, gas, and coal, it tells a story about

how we think you invest in the future. >> thank you. just a couple of thoughts. years ago i was taught what was called a harvard case study approach to solving problems. it was taught in business school and the idea was to your given this complicated situation with different things that would be a good thing to do. part of the discipline was that you should pick the number one thing, the first and essential element you have got to deal with. frequently that was the situation that would determine whether the company was going to succeed or fail. but as i take a look at the things that you are looking at dealing with within the budget, to some degree we are dealing with peripheral things and it seems that there has been pretty good emphasis, but the and

velvet -- the elephant in the room is the tremendous growth of entitlements. i heard references to the fact that the defense budget is the bugaboo, but if you take a look at defense relative to gdp, you're looking a close to 9% being used on defense. we talk about cutting this expeditionary funding vehicle for the marines. the only problem is if you really believe in the marines, you have to get them from the ocean to the shore. i am not so sure that you have cut gdp for defense well, not quite in half, but in the meantime entitlement has gone from 2.5% to the other entitlements, well up 12%. putting them together, all of a sudden that is what our revenue is. seems to me that the elephant in

the room is the entitlement. courageous leadership will acknowledge that fact and say let's have the conversation to talk about what we will do with those. we all know that they're talking about heavy cuts in discretionary, the tip of the iceberg. i guess it is disappointing to make the main subjects of the main subject. this phrase, the idea that we will somehow shocked a fragile recovery by cutting discretionary income assumes that the discretionary income somehow helps the economy. if you could in light me in that line of reasoning? >> thank you, congressman. i have a soft spot for those business school case studies. i paid my way through college by producing them. i think that the court challenge

that we have, the first thing i would do in a university classroom about how we solve the problem would be to say -- where do we need to be on the bottom line? deficit without adding to the debt. i would ask -- what are you doing to get there? when you separate the question of when you need to do for the long term, which is will we have done in this budget. in a very direct way we are saying we need to work together on the long term. there is much open for discussion. the easy thing to do is polarized the environment. >> let me jump in. in order to come up with the numbers, some of my democratic

colleagues have talked about -- talked about when president bush took office, everything was perfect, but i heard that there was quite a recession going in 2000, 2001. we were tarred and feathered as sticking up for the rich guy, but the problem is that rich guys own all the businesses. if you destroy them by overtaxing, you had no jobs. what we saw was the first of all, the gdp jumped, but we did it by cutting small businesses and investors. we went from of employing a lot of people to jobs being created.

last of all, the government revenues choked up -- when we cut the taxes. and not understand how you may get grow with taxes. >> i would love to respond, but i see the light. >> a say this with fondness, mr. sharon. you have become an aids essential party. you have amnesia about the past and how we got to this place. and you do not want us to invest in the future. the we're stuck in the here and now, i do nothing to we are.

this is an incredible blueprint to begin with. this, there is a simple juxtaposition going on here. the president's budget, and correct me if i am wrong, the president's budget achieves substantial deficit reductions. it achieves a sustainable that of 3% of gdp by 2015. is that correct? sorry, sustainable deficit is what i meant to say. the second question is, is it not true that in the president's budget there is $5 billion in small business tax cut for 2012? and if you add up the 10 years, there is $160 billion in real

tax cuts for small businesses? correct? >> there are substantial incentives for small businesses adding up. i do not have the exact number in front of me. >> my first question, second question -- some of my colleagues, whom i admirer and respect, which is nothing to smile about, i mean it. the first question -- why do you not show leadership in going after medicare and social

security, and i personally believe that we can balance the deficit without cutting medicare for seniors. that is my own personal belief. is it not true that federal health care reform adopted many recommendations from congress and its own advisory commission? by having medicare center for innovation, medicare can now test and use new payment models. we fought to have that in their for a very specific reason. to not only improve patient care but to lower the national spending on health care. would you please respond to

that? >> we have had real savings, bigger savings over 10 years, which is how we will reduce spending going forward. many of those things do not score easily. we believe that they will have results and we have to stay on the course of implementing it. >> many of those were not even scored correctly. >> does not mean they are real. >> why is that it's them when we say defense appropriations? why not cops ira -- cops on the beat in new jersey? >> i want to start by saying

that we provide funding to make sure that we can keep the cops on the street. we do not believe that the choice is doing only one or the other. the shorter answer as to supporting the training of the police in afghanistan, to get to the point where we can withdraw american troops, we will have to protect ourselves to not be put at risk. >> i want to make sure that every member gets a chance, i am asking for unanimous consent to reduce speaking time to 4 minutes per member. without objection? >> i was going to object, it was my time. [laughter] my friend, why -- we either need to get taller or you guys need

to get shorter. >> i find myself leaning forward a lot more. >> there are three areas that i would like to ask you about. you keep the tax cut for the people that receive them, does that suggest that you do not think that those went to the rich, particularly? and that you see them as continuing to be beneficial to the economy? >> we believe the tax cuts for the middle class are a good thing. and that we should continue to do so. even though we're saying there

should not be additional tax breaks. >> i have called the president, we can disagree about 20 percent of the bush tax cuts, but 80% we do agree on. in your budget, your deficit reduction plan, you have some -- some spending restraint. what is the balance the strike between tax increases and spending cuts or restraint? >> i apologize, it is a bit of a complicated answer. i want to be clear, the start with a baseline that assumes the tax rate in the top bracket stays where it will be. from that day, we have $360

billion in additional revenue. i say that because we have $392 billion. we have $750 million in non- security discretionary savings. we count the debt service. >> we obviously disagree on letting those run out and whether it amounts to a tax increase. biscuit the crucial questions that my friend raised. we all know that the entitlement spending will be a major focus. that is where the problem is.

since you have expressed a lot of what the president wants to do, taking options off the table, i am disappointed we have not seen more at this point. can you tell me when the discussion would begin? will the president proposed the format it should take place in? i >> the president has put quite a lot on the table and it's the first that in the process. we have a lot of work to do together both in terms of finishing the work in 2011 and getting to work in 2012. from my own personal experience, having watched and in part of the deficit reduction efforts, when we have had real success on a bipartisan basis, it has come

from people working together behind the scenes and in an environment where there can be the kinds of open conversations where there is trust. if we concentrate on developing that kind of concentration, we will produce the best results for the american people. >> thank you, mr. chairman. welcome. i would like to show you a chart. i understand you were the head of in the last few years of the clinton administration when there were burgeoning debts. is it true that you left when we had a projected 10-year surplus of $5.6 trillion? >> i was director three years in a row when we had surpluses. we did not have deficits. >> i stand corrected. when president obama at the office, we were facing a $8

trillion dollar deficit. must have been frustrated during that -- frustrating during his eight years to watch what happened during the surplus is left at the end of the clinton administration. >> i don't exaggerate when i say it breaks my heart. you look at what drove the deficit up, some of it was beyond our control in terms of the economy. when there is a recession, there's a loss of revenue and there is certain spending in half. some of it was because of wars which you don't necessarily choose, but if you go to war, that's an extraordinary circumstance. some of it was because we just suspended the basic common sense of paying for what we did. we had tax cuts and spending increases that were not paid for and that is what created the long-term problem we're dealing with now. the other things correct themselves. the economy is recovering and we will see things get back to

their normal levels. the worst will come to an end. they're pulling our troops from iraq. the other creates a problem we have to deal with. >> that is why i am grateful you have taken on this new challenge. this budget reflects and we agreed government has to live within its means. we must remain mindful we are coming out of the most severe recession in our lifetime and we have got to build on the economic foundation for the future. that is why i am particularly focused on job creation and our work force. my district is home to one of the largest universities in the country and a lot of private universities, i am 100% behind you on what this budget does to maintain the maximum pell grant for students. you know that the pell grants

help over 9 million students across america for college. there's a lot of confusion about the pell grants. it appears president obama maintains a national poll grant for 20124 stevens and you pay for it by cutting the relatively new year round pell grants that allow some students to qualify for two. i was not aware they could do that. are you also aware that in contrast to what the president's budget is trying to do on the floor of the house, the republican continuing resolution has proposed cut in the appellate grants by $845 per student for 2011? i think that is moving in the wrong direction. we want to ensure we have the most competitive work force

across the globe. could you explain your budget and why you view that as a priority in your view of the republican efforts to diminish support for students at how it will hurt our national goal of supporting an educated workforce -- >> can i ask you to explain that? >> we think all grants are an enormously important programs. we have taken the tough steps to pay for it and if you look at the spending now, pell grants is one of the biggest and best investments we could make in our future. >> if you ask your question at the end of the time allotted, you are taking away from our colleagues. >> thank you for joining us. some of our friends on the other side of the aisle, one of them said there is and me about the past. i want to visit a little bit of the emmys and that goes around to the other side. you said this last time you were

before this committee, you produced a balanced budget. what party was in control of congress in the house of representatives? what i am proud to say we worked on a bipartisan, balanced agreement. we worked with republican leadership -- >> thank you. can you tell me what the debt was in this country at the end of 2006? >> i would have to look at number of. >> the debt when republicans ended their control of congress was $8.4 trillion tree would you say that is about right? >> when we took office, it was approaching $10 trillion. >> that would be about right -- the debt right now? >> the debt right now -- that i can look up. >> about $14 trillion. about 6 trillion dollars under

democrat leadership, is that correct? >> i think one can go through these numbers and we can look at the book and establish what the numbers are. one has to understand what was going on. we were going to the worst economic conditions. >> i only get four minutes. as the elephant in the room has been discussed, is a remarkable display that we believe has come out of the administration. when i was a kid, we to play kickball in the street and what we turned around and headed toward our house, we knew the house was going to be there. the house is burning down, mr. director and the fact is the administration is playing kickball and not attending to the work that needs to be done to put a budget before the american people that doesn't address the entitlement issues is reckless and irresponsible. you talk about "to get the balance, i set of decisions need to be discussed. no one is discussing right now.

i will tell you is discussing them and that is our constituents. they are scared to death and they don't see any leadership coming out of this administration. when does that discussion began? >> congressman, if you knew was going on -- >> when does that discussion began? what i'm happy to answer your question if you give me a moment. but the fact of the matter is you are not answering the question. >> the president takes the first and very important step of how to get to a sustainable deficit by the middle of the decade. the president has said lead to work together on a bipartisan basis to do what we need to do in the long term and we cannot confuse the two issues. >> does this budget deal with the entitlement issue? >> entitlement issues did not cause the increases you have just described. the worst economic recession since the great depression drove those numbers. we need to get the economy moving and take the steps we put forward in this budget and on a

bipartisan basis, work together. >> we look forward to that. this budget does not deal with the entitlement issues. i want to turn my attention to the tax issues. the assumptions under this budget assume the tax increases will accrue for those making $250,000. >> a tax increase for small businesses occurs within his budget window? >> individuals and families of over $250,000 a year will pay the same taxes they did at the end of the '90s when the economy was growing. >> the amount of the increase is about $1.6 trillion? >> again, a gift to this question of measurement. i tried to be clear there is a portion we are not taking credit for because it is in the baseline. >> we already established the 1.6 number. >> thank you.

>> thank you for joining us. >> mr. chair, what happened to me? i just want to know? >> as you know, the rules are in the order in which you show up. >> i just wanted to make sure i have not disappeared. >> you are still there. >> ok. >> thank you for providing insight on the president's proposed budget. i am aware you are a fellow new yorker. last month, members of the new york delegation in the house, myself included, wrote about extending the federal-state health reform partnership. this partnership between new york and the federal government has led to significant modernization and improvements for several hospitals and health systems. established by the former governor to improve new york's out date health-care system. the funds have been allocated

already but not all of the funds have been are authorized by the agreement have been finished. the new york delegation also wrote to urge you and secretary sibelius to extend the waiver for three years. my concern is that be agreed to hear. it is a common-sense thing to do and if the office of management budget extends the waiver before it expires this year. >> i know it is under review. there are 2 wafers under review. i have been at for eight weeks. has not come to me for a decision yet and we will continue to work with the state as we review it. >> great. , i amesident's budget very concerned about the investment in research and development and basic research and a happy to notice the president's budget invests $148

billion in research and development and key basic research. contrasted with the republican spending plan that would slash research and development, the president's budget proposes robust investment in the national institute of health for doctors and scientists working to cure cancer. the gop spending plan on the floor cuts the budget by about a billion dollars. medical research has proven to extend the life expectancy from 50 years to 1911 to nearly 80 years now in 2011. can you explain the approach taken with basic research and the president's plan? some call it spending and others say it is investing. >> i'm happy to.

we have taken a very close look at the budget and we have looked down some of the traditional budgets and there has been a consensus that biomedical research is important. we have increased our biomedical research in of look at areas like medical research. we of the research into technologies that will make us the most competitive countries with the technology of the future. we put money into basic research. we have to have a comprehensive research agenda in order for us to be in place where the president says we can out of eight other countries. it has been an area of historic strength in the u.s.. today, we spend more as a country on research than anybody in the world. there are certain aspects that don't happen in the private sector alone because there is too much risk and to many

experiments and things that are not going to become commercially viable, but need to go to the process to get that out there. we have a tissue -- a history of transferring from government funded research to private sector development and we have tried a budget that will continue what we think is the best of american development. >> thank you. >> i want to compliment you on the job he did under the clinton administration. you guys did an absolutely magnificent job managing the nation's fiscal affairs. you cut spending by any miraculous 4% of gdp during your years. historic reform of entitlement, ending welfare as we know it, what amounted to the biggest capital gains tax cut in am